Jump to content
House Price Crash Forum
Sign in to follow this  
mad'un

Can Someone Explain This Nervousness In Industry Please?

Recommended Posts

My daily grind involves selling reasonably high-value capital equipment into (mainly) the food and drink industry. Historically, all funding is from capital expenditure and is justified through cost-savings including head-count reductions - an easy sale normally. I began this year with a good outlook, many large companies had projects in place and funding was not going to be any more of an issue than it normally is.

The wierd thing is that over the last few months I have seen many approved projects stopped dead at the point of signing by financial directors without any explanation. All the justifications have been good, cost savings have been proved, funds approved and then - STOP! I am also hearing more and more in the grapevine that many large organisations are planning site closures and redundancies for early next year. I am seeing a great deal of "nervousness" in industry and a reluctance to spend. Projects are still allowed to progress though and the attitude of the project managers I deal with is becoming apethetic, they almost know now that they are p*ssing in the wind carrying out all the evaluations etc.

I know as well as anyone that it's tough for industry, but the food and drink sector has been remarkably bouyant. Any ideas as to why the sudden severe belt-tightening? Joe public is tightening his belt because he has over-stretched on cheap credit and is mortgaged to the hilt, but I don't understand why this should mirror in industry.

Please help me to understand this better - my MD refuses to acknowledge that there is a problem brewing! :angry:

Share this post


Link to post
Share on other sites
Guest absolutezero

My daily grind involves selling reasonably high-value capital equipment into (mainly) the food and drink industry. Historically, all funding is from capital expenditure and is justified through cost-savings including head-count reductions - an easy sale normally. I began this year with a good outlook, many large companies had projects in place and funding was not going to be any more of an issue than it normally is.

The wierd thing is that over the last few months I have seen many approved projects stopped dead at the point of signing by financial directors without any explanation. All the justifications have been good, cost savings have been proved, funds approved and then - STOP! I am also hearing more and more in the grapevine that many large organisations are planning site closures and redundancies for early next year. I am seeing a great deal of "nervousness" in industry and a reluctance to spend. Projects are still allowed to progress though and the attitude of the project managers I deal with is becoming apethetic, they almost know now that they are p*ssing in the wind carrying out all the evaluations etc.

I know as well as anyone that it's tough for industry, but the food and drink sector has been remarkably bouyant. Any ideas as to why the sudden severe belt-tightening? Joe public is tightening his belt because he has over-stretched on cheap credit and is mortgaged to the hilt, but I don't understand why this should mirror in industry.

Please help me to understand this better - my MD refuses to acknowledge that there is a problem brewing! :angry:

Not going to be as simple as: public tightens belt, they don't buy therefore a lack of custom coming up, is it?

Share this post


Link to post
Share on other sites

It was the same in the last recession. The company I worked for made expensive desktop publishing systems (at the time you could have bought a decent house for the cost of one system), lots of people from other companies came for demos and wanted to buy, but the higher-ups in their companies wouldn't sign it off. After practically no sales for a year or so the company went bust... while the companies which saved money rather than buying systems from us are mostly still going.

Share this post


Link to post
Share on other sites

Cheaper foreign competition/location - getting too expensive over here.

Prospect of Brown becoming PM is probably enough for any Chief Exec reconsider growth in the UK.

Demand reduction in light of expected consumer downturn as above.

Share this post


Link to post
Share on other sites

My daily grind involves selling reasonably high-value capital equipment into (mainly) the food and drink industry. Historically, all funding is from capital expenditure and is justified through cost-savings including head-count reductions - an easy sale normally. I began this year with a good outlook, many large companies had projects in place and funding was not going to be any more of an issue than it normally is.

The wierd thing is that over the last few months I have seen many approved projects stopped dead at the point of signing by financial directors without any explanation. All the justifications have been good, cost savings have been proved, funds approved and then - STOP! I am also hearing more and more in the grapevine that many large organisations are planning site closures and redundancies for early next year. I am seeing a great deal of "nervousness" in industry and a reluctance to spend. Projects are still allowed to progress though and the attitude of the project managers I deal with is becoming apethetic, they almost know now that they are p*ssing in the wind carrying out all the evaluations etc.

I know as well as anyone that it's tough for industry, but the food and drink sector has been remarkably bouyant. Any ideas as to why the sudden severe belt-tightening? Joe public is tightening his belt because he has over-stretched on cheap credit and is mortgaged to the hilt, but I don't understand why this should mirror in industry.

Please help me to understand this better - my MD refuses to acknowledge that there is a problem brewing! :angry:

That old sentiment thing again?

Just look around you, worldwide, would you say optimism is the current mood?

Then, here, bad news seems to have hit so quickly this year.

The near future is hard to determine in many areas. That must affect decisions on capital spending.

Food and drink processing?

Eastern Europe looks a good place for most of that.

Look to there for business if your organisation isn't already doing so.

Share this post


Link to post
Share on other sites

Recession is coming. The really interesting thing is that you say many companies are planning layoff's in the New Year. There is your answer. The food and drink industry will not be the only ones' with such plans. Industry is battening down the hatches. Check out the FTSE. Building stocks are taking a hammering because the property market has stalled leading to much reduce consumer spending.

Then check out what is happening to GM and Ford in the US. It all means big job losses right across the board.

Phase two of the slow down is getting underway. Next stop recession.

Share this post


Link to post
Share on other sites

It was the same in the last recession. The company I worked for made expensive desktop publishing systems (at the time you could have bought a decent house for the cost of one system), lots of people from other companies came for demos and wanted to buy, but the higher-ups in their companies wouldn't sign it off. After practically no sales for a year or so the company went bust... while the companies which saved money rather than buying systems from us are mostly still going.

LOL

that is brilliant as the systems would have been worthless in abouut 5-7 years

I used to work in IT and was in charge of a project to install two SQL Servers in a bank in London. these were to do all the data crunching for a large offshore banking database called GLAS.

this type of stuff was usually done on AS400 s and minis and mainframes with serious operating systems.

they tried to do it on compaq rack servers running nt 4 which looked impressive to us all .

i remember we couldnt figure out why it was taking days to process the data instead of 12 hours,

i got the blame , the project manager go the blame , the programmers got the blame, the database designer got the blame.

it is only with hindsight i realise that tryig to run this huge databse on a Pentium 2 was never gonna work.

but at the time we didnt know how feeble pentium 2s really were and couldnt understand why it didnt work.

i have a pentium 2 laptop now for emergencys and its slow.

Share this post


Link to post
Share on other sites

the economy is just one big pyramid, with the consumers at the bottom. whatever business you are in, you are somewhere in the pyramid. take away or weaken a few of the consumer blocks on the bottom row, and someone else, somewhere else is affected. it really is as simple as that. whether you are into mining, crisps, printing presses, they all have a place in that pyramid.

Share this post


Link to post
Share on other sites
that is brilliant as the systems would have been worthless in abouut 5-7 years

Probably less than that on the PC side, we were using something like 50MHz 486s and some RISC chips on our own cards to accelerate rendering. However, most of the cost was in the color printers, not the computers: in fact, most of the lifetime cost of the system was probably in the printing itself, the old printers sure weren't cheap to run.

Either way, it doesn't really matter if it has a limited lifetime provided they pay for themselves over that time... and what we were doing was cheaper than the competition with decent performance and some features they didn't have.

Share this post


Link to post
Share on other sites

In some cases the projected savings may not eventuate because senior management is planning to close the site altogether instead. Staff working there wouldn't necessarily know this so they may be genuinely puzzled about why projects aren't being approved.

Consider this example. It's long but illustrates the point. Company xyz has 10 sites which produce the same product. They are located in different countries. At present the company is selling 10 million boxes of product per year and the marginal production costs (that which varies with actual production) and capacity are:

Site 1: $15 per box. 2.0 million boxes per year.

Site 2: $18 per box. 1.6 million boxes per year.

Site 3: $24 per box. 1.5 million boxes per year.

Site 4: $30 per box. 1.4 million boxes per year.

Site 5: $50 per box. 0.4 million boxes per year.

Site 6: $55 per box. 0.5 million boxes per year.

Site 7: $58 per box. 0.7 million boxes per year.

Site 8: $80 per box. 0.2 million boxes per year.

Site 9: $110 per box. 1.0 million boxes per year.

Site 10: $260 per box. 1.7 million boxes per year.

So, the company can produce 11 million boxes of product per year but is only selling 10 million. So to maximise profit (minimise production cost) they would be running sites 1 through 9 flat out but number 10 is running well below capacity. Many years ago site 10 was the major site but now it's bottom of the heap.

Now, let's assume that sales fall to 8.5 million boxes of product per year. Site number 10 no longer has any purpose and due to it's high cost would likely be permanently closed. Game over. Site 9 would be running at only 20% of capcity.

Now, sales fall a bit more during the depths of the coming recession to 8 million boxes of product. Sites 8 and 9 are now no longer needed and given their high costs would likely be permanently closed.

Then the economy emerges from recession but this company has a problem. With 3 sites closed their production capacity has been reduced to only 8.1 million versus sales of 8 million. They have little room for expansion during the recovery. So what to do?

Looking at the overall situation, I would expect that the company would build a major new plant with capacity of, say, 2.5 million boxes of product per annum located in a cheap labour country. This would have the lowest production cost of any of the company's plants.

Now sites 5, 6 and 7 are surplus to requirements. But with a booming economy by this stage they would likely be retained "for the moment" just like sites 8, 9 and 10 were previously retained before the recession. But as soon as the next recession comes, sites 5, 6 and 7 are history as the cycle repeats.

The point here is that there is simply no point whatsoever in investing in sites 8, 9 or 10 and management would know this. Even at sites 5, 6 and 7 any investment proposal would need to be pretty good since they only have medium term future. On the other hand, sites 1, 2, 3 and 4 are worth investing in but they likely already have modern equipment. Hence at this stage of the economic cycle there isn't too much market for new equipment which I think is what you are seeing.

Share this post


Link to post
Share on other sites

King et al expect business investment demand to pick up the reigns where thier huge consumer demand boom left off. A huge amount of money growth has turned property owners into millionares and savers into the new homeless. Three factors will deter capital investment.

1. Asset inflation leaves a low and increasingly dimishing real return on capital via increasing costs.

2. The decline of volume in markets as projected demand drops when people stop spending free money.

3. The increasing liabilities which business can see occuring which at best mean flat consumption.

We could be heading for a great slump as resource inflation continues.

In some cases the projected savings may not eventuate because senior management is planning to close the site altogether instead. Staff working there wouldn't necessarily know this so they may be genuinely puzzled about why projects aren't being approved.

Consider this example. It's long but illustrates the point. Company xyz has 10 sites which produce the same product. They are located in different countries. At present the company is selling 10 million boxes of product per year and the marginal production costs (that which varies with actual production) and capacity are:

Site 1: $15 per box. 2.0 million boxes per year.

Site 2: $18 per box. 1.6 million boxes per year.

Site 3: $24 per box. 1.5 million boxes per year.

Site 4: $30 per box. 1.4 million boxes per year.

Site 5: $50 per box. 0.4 million boxes per year.

Site 6: $55 per box. 0.5 million boxes per year.

Site 7: $58 per box. 0.7 million boxes per year.

Site 8: $80 per box. 0.2 million boxes per year.

Site 9: $110 per box. 1.0 million boxes per year.

Site 10: $260 per box. 1.7 million boxes per year.

So, the company can produce 11 million boxes of product per year but is only selling 10 million. So to maximise profit (minimise production cost) they would be running sites 1 through 9 flat out but number 10 is running well below capacity. Many years ago site 10 was the major site but now it's bottom of the heap.

Now, let's assume that sales fall to 8.5 million boxes of product per year. Site number 10 no longer has any purpose and due to it's high cost would likely be permanently closed. Game over. Site 9 would be running at only 20% of capcity.

Now, sales fall a bit more during the depths of the coming recession to 8 million boxes of product. Sites 8 and 9 are now no longer needed and given their high costs would likely be permanently closed.

Then the economy emerges from recession but this company has a problem. With 3 sites closed their production capacity has been reduced to only 8.1 million versus sales of 8 million. They have little room for expansion during the recovery. So what to do?

Looking at the overall situation, I would expect that the company would build a major new plant with capacity of, say, 2.5 million boxes of product per annum located in a cheap labour country. This would have the lowest production cost of any of the company's plants.

Now sites 5, 6 and 7 are surplus to requirements. But with a booming economy by this stage they would likely be retained "for the moment" just like sites 8, 9 and 10 were previously retained before the recession. But as soon as the next recession comes, sites 5, 6 and 7 are history as the cycle repeats.

The point here is that there is simply no point whatsoever in investing in sites 8, 9 or 10 and management would know this. Even at sites 5, 6 and 7 any investment proposal would need to be pretty good since they only have medium term future. On the other hand, sites 1, 2, 3 and 4 are worth investing in but they likely already have modern equipment. Hence at this stage of the economic cycle there isn't too much market for new equipment which I think is what you are seeing.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.